Exogenous Shocks and Growth Crises in Low-Income Countries: A Vulnerability Index

Era Dabla-Norris and Yasemin Bal Gündüz

No 2012/264, IMF Working Papers from International Monetary Fund

Abstract: This paper develops a new index which provides early warning signals of a growth crisis in the event of large external shocks in low-income countries. Multivariate regression analysis and a univariate signaling approach are used to map information from a parsimonious set of underlying policy, structural, and institutional indicators into a composite vulnerability index. The results show that vulnerabilities to a growth crisis in low-income countries declined significantly from their peaks in the early 1990s, but have risen in recent years as fiscal policy buffers were expended in the wake of the global financial crisis.

Keywords: WP; Vulnerability index; growth crises; low-income countries; growth crisis; real GDP growth; terms of trade; confidence interval; explanatory variable; crisis probability; Exchange rate arrangements; Currency markets; Export prices; Exports; Global (search for similar items in EconPapers)
Pages: 41
Date: 2012-11-02
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Citations: View citations in EconPapers (3)

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